Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Saturday, August 19, 2006

Ford Sets Steep Cuts to Vehicle Production

Gurp:

Ford Sets Steep Cuts to Vehicle Production - New York Times: By MICHELINE MAYNARD: The Ford Motor Company said today that it would cut vehicle production by 21 percent in the fourth quarter, its steepest cut in more than two decades, because sales of its most important products, light trucks, are faltering.

Ford said it was abandoning its goal, reiterated as recently as April, of selling 900,000 pickup trucks a year in the United States. That could mean that the reign of Ford's F-series pickup truck as the best-selling vehicle in America could be coming to an end after nearly a quarter-century.

The company said the production cuts were necessary because high gasoline prices were eroding sales of light trucks and sport-utility vehicles, which account for two-thirds of Ford's sales, and that it could no longer hope for fuel prices to fall again.... "We know this decision will have a dramatic impact on our employees, as well as our suppliers," Mr. Ford wrote in the message. "This is, however, the right call for our customers, our dealers and our long-term future."

Ford Motor executives are trying to develop an expanded version of the North American turnaround plan that the company announced in January. The plan, called the Way Forward, called for the company to close 14 plants and eliminate 30,000 jobs by 2012 to streamline its operations and cut costs. Ford is now looking at deeper cuts, on a swifter timetable than the original plan. It is expected to announce the additional steps in September. General Motors is undergoing a similar effort to trim costs and turn around its North American vehicle business; it has said it will close all or part of a dozen factories and eliminate tens of thousands of jobs.

Ford's announcement today that it would cut fourth-quarter production by 168,000 vehicles will have an immediate impact on its bottom line. Auto companies count vehicles as sold when they are shipped from the factory to the dealer, not when they are ultimately purchased by the consumer. Under this system, cutting production directly reduces the manufacturer's potential for revenue and profits.

Ummm. No. A small correction. Ford's announcement today does not have "an immediate impact on its bottom line." It has an immediate impact on what Ford reports its bottom line to be--but not on the bottom line itself.

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